Heading into 2022, bond funds were showing signs of struggle. The Morningstar Core Bond Index recorded its first decline since 2013 recently, and as interest rates begin to rise, things aren't looking hopeful for fixed-income investors choosing these places to put their savings.
For many, this may mean it’s time to clear bonds from your portfolio. Investors who are trying to be more strategic about the fixed-income investments they hold are finding there are still plenty of ways to enjoy more flexibility when rates rise.
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Although certain fixed income investments aren’t faring as well these days, there are plenty of opportunities to generate fixed income streams from your savings heading into retirement. Of course, one of the primary concerns for those close to retirement is how safe the investment is. Here are three solid contenders for investing your hard-earned cash that can help maximize your fixed income streams safely, from lowest to highest income potential.
Annuities are contracts, usually with an insurance company, that guarantee a stable payment stream over a predetermined time period in exchange for an initial investment. Annuities can be structured in numerous ways, for example, paying for a fixed term such as 20 years or until the end of life.
Fixed annuities pay a specific sum of money, usually monthly, over a set period of time. It’s usually possible to make a lump-sum payment and start earning a fixed income immediately, but many people also choose to pay into it over time so the annuity will begin paying out after retirement.
The benefit of a fixed annuity is that it provides a guaranteed income and rate of return, providing a high level of financial security when it matters most. An annuity may also provide a method for growing income on a tax-deferred basis. Finally, you can contribute an unlimited amount to annuity accounts. Depending on the contract, some annuities may even offer additional perks like death benefits or minimum guaranteed payouts.
As far as risk is concerned, annuity contracts are notoriously complex, so there’s a chance the deal may not be as attractive as you’d expected. Be sure to always read the contract’s fine print closely. Keep in mind annuities are fairly illiquid, making it hard or impossible to get out of one without paying a hefty penalty. In the event inflation increases substantially, your guaranteed payout may not last as long as you initially planned.
Although stocks aren’t as safe as CDs, savings accounts, or government debt, they’re generally less risky than high potential payoff investments like options or futures. Dividend stocks are also often safer than high-growth stocks because of their cash dividend payments, which help limit their volatility to an extent. Dividend stocks still fluctuate with the market, but they often don’t fall as far when the market takes a hit.
With this in mind, it’s important to note dividend-paying stocks aren’t the safest investment out there when times get tough—there were dividend-paying stocks that lost 20 percent or 30 percent in 2008. Major market downturns aside, though, dividend-paying companies tend to be more stable and mature, offering both the dividend as well as stock-price appreciation.
These stocks protect your investment by depending not only on the stock price rising, but paying a regular income also. The more you buy, the more fixed income you earn when the company pays out.
One final factor to consider is if the company runs into tough times, it could be forced into trimming or eliminating its dividend, likely driving the stock price down at the same time.
For investors who want safety for their fixed incomes, many find real estate-backed income funds an attractive option, especially when approaching retirement. Real estate funds can deliver better levels of security than funds that focus on stocks that can fluctuate in value every day. The best part is the return on investment. Real estate funds often deliver superior returns when compared with other types of fixed income investments. Some even deliver fixed income payments on a monthly basis—far more often than dividend-paying stocks offer.
Choosing the best fixed income investment is largely dependent on how much safety they provide. Beyond this, consider how often you’ll be receiving your fixed income payments. Do you need payments every month, or is four times a year enough?
When maximum security is key, income annuities provide peace of mind that you’ll be paid a steady fixed income for the rest of your life. These are great for being certain you’ll never need to worry about the basics like shelter, clothing, and food, but the yields are usually quite low.
If earning higher returns while still enjoying monthly fixed income payments matches more closely with your financial plan, consider an income fund that’s backed by a wide range of real estate that works to mitigate risk. These funds usually hold numerous categories of commercial real estate, such as office space, warehouse space, retail space, and even some multifamily apartment complexes. This diversification of assets provides investors with reduced risk levels when compared with stocks or directly renting a single family home to one tenant.
When bringing in a secure fixed income during retirement is the foundation of your financial plan, keeping risk low is paramount. Saint Investment provides safe, consistent fixed incomes through our real estate fund. You’ll enjoy a steady, secure income each month without the hassle of managing real estate directly. Our team of real estate experts analyze every single property that goes into our income funds. Leverage our real estate experience by investing in our fixed income fund. You’ll also get detailed reporting and full transparency, enabling you to earn income with peace of mind. Call (323) 483-0291 today to start earning a fixed income you can count on!
A master in Investment, Marketing, and Capital Raising.
Nic has honed his focus on the Real Estate and debt markets with Saint Investment Group and pursues large-scale Distressed Asset purchases with his partners and syndications.